14th April 2020 - AUD boosted above 0.6400 by oil production cuts

Good morning

OVERNIGHT DATA AND HEADLINES

A total of nine states on the U.S. East and West coasts said on Monday they had begun planning for the slow reopening of their economies and lifting of strict stay-at-home orders amid signs the worst had passed in the U.S. coronavirus pandemic. The Northeast states of New York, New Jersey and Connecticut will work with Delaware, Pennsylvania and Rhode Island in coordinating to gradually reopen their economies together, New York Governor Andrew Cuomo said. "Nobody has been here before, nobody has all the answers," Cuomo said during an open conference call with his five counterparts. "Addressing public health and the economy: Which one is first? They're both first.” The governors of California, Oregon and Washington said they also had reached an agreement on a shared approach to restarting businesses, although they gave no firm timeline and said they would be guided by the health of residents first.

U.S. President Donald Trump said earlier on Monday that any decision on restarting the economy was his to make. Legal experts say a U.S. president has limited power under the U.S. Constitution to order citizens back to their places of employment, or cities to reopen government buildings, transportation, or local businesses to reopen. "It is the decision of the president, and for many good reasons," Trump wrote on Twitter on Monday. He went on to write that his administration was working closely with the governors. "A decision by me, in conjunction with the governors and input from others, will be made shortly!" Trump's tweet said.

The minimal impact on oil prices from a global deal for record output cuts showed that oil producers have a mountain to climb if they are to restore market balance as the coronavirus shreds demand and sends stockpiles soaring. After several days of deliberation, OPEC and allies led by Russia hammered out an agreement to cut output by 9.7 million barrels per day in May and June, equal to nearly 10% of global supply. Other major producers like the United States and Canada gave indirect commitments to cuts as well, playing up forecasts for drastic production declines in coming months due to the free-fall in prices. The oil market has barely shrugged, however: Brent crude gained 1.5% on Monday, while U.S. crude ended the day lower. The move underscores what both investors and producers already understand - that the monumental deal to cut supply in face of a 30% drop in demand could only accomplish so much initially.

A steep economic downturn and massive coronavirus rescue spending will nearly quadruple the fiscal 2020 U.S. budget deficit to a record $3.8 trillion, a staggering 18.7% of U.S. economic output, a Washington-based watchdog group said on Monday. Releasing new budget estimates based on spending mandated by law, the Committee for a Responsible Federal Budget (CRFB) also projected that the fiscal 2021 deficit would reach $2.1 trillion in 2021, and average $1.3 trillion through 2025 as the economy recovers from damage caused by coronavirus-related shutdowns. The estimates follow the U.S. Treasury's report on Friday of a $744 billion budget deficit in the six months through March 30, which included minimal impact from the outbreak of the new coronavirus. Officials said significant budget impacts from spending and reduced revenues would appear in April's budget results.

Stocks on Wall Street slid while crude prices edged higher on Monday as a global deal on record output cuts failed to quell concerns on whether the pact is enough to head off an oil glut as the coronavirus pandemic hammers economies worldwide. U.S. stock markets slipped in subdued trading after a strong rally last week. Dow Jones was down 1.39% at 23,390, the S&P 500 was down 1.01%, at 2,761.

CURRENCIES

The U.S. dollar index inched lower with Europe out on holiday for Easter Monday. The DXY index was down 0.05% from 99.58 to 99.46.%.

China’s CNY started on a softer footing despite a firmer-than-expected midpoint. Onshore CNY opened at 7.0440 and was changing hands at 7.0560.

EUR was weaker over the Easter period, dropping from a 1.0965 high to 1.0890 low but rebalancing back around 1.0910/20.

GBP climbed higher, reaching a 1.2530 high from 1.2445 but falling back to trade around 1.2500.

USDJPY strengthened from 108.60 towards 107.50, rising in late trade to 107.75.

AUD saw solid gains higher from 0.6230 lows all the way up towards a 0.6404 high. Opens slightly lower at 0.6383.

NZD jumped up from around 0.6000 to a 0.6106 high, falling back to 0.6090.

AUDNZD rallied through 1.0350 to a fresh 1.0487 high (level last seen 5th March).

AUDEUR was stronger, gaining up from 0.6220 lows towards a 0.6404 high (highest since 11th March).

TREASURIES

U.S. Treasury yields rose on Monday, bolstered by news the coronavirus outbreak may be nearing a peak in the U.S, raising hopes for reopening the economy weeks after restrictions to fight the fast-spreading disease shut it down. In afternoon trading, U.S. 10-year yields rose to 0.750% from 0.722% late on Friday.

Yields on U.S. 30-year bonds were at 1.383%, up from 1.348% on Friday.

U.S. 2-year yields were last at 0.243%, up from Friday's 0.225%.

COMMODITIES

Gold soared over 1.5% to its highest in more than seven years on Monday, as panicked investors scurried towards the safe-haven metal on fears of coronavirus blow to the global economy and U.S. corporate earnings. Spot gold surpassed the key $1,700 pivot to touch its highest since December 2012 earlier in the session and was last up 1.7% at $1,717.36 an ounce.

Steel futures in China closed higher on Monday, with construction rebar extending gains into a fourth session, on hopes that favourable monetary policies will boost demand. The most-actively traded steel rebar futures on the Shanghai Futures Exchange ended 1.7% higher at 3,387 yuan per tonne, a three-week high. Spot prices of iron ore with 62% iron content for delivery to China rose by $0.3 to $84.3 a tonne on Friday.

Copper futures prices climbed to their highest in nearly four weeks on supply worries, following a fall in inventories and operations suspension in major producer nations. The most-traded copper contract on the Shanghai Futures Exchange climbed as much as 1.9% to 41,980 yuan ($5,958.80) a tonne, its highest since March 17. The contract closed at 41,850 yuan a tonne, up 1.6%.

Oil prices gained 2% following a record deal among oil producers to cut the rapid rise in supply, a muted impact on the market as the coronavirus pandemic hammers demand. Brent futures rose 63 cents, or 2.0%, to $32.11 a barrel while U.S. West Texas Intermediate (WTI) crude rose 42 cents, or 1.9%, to $23.18.

AUD extended its gains off trend lows struck last month, scoring higher highs and lows for a sixth consecutive session with the help of a global deal to cut oil production that should shore up commodity currencies even if it won't solve all problems confronting the crude market. AUD touched a 0.6404 high and also saw major improvement against most other major currencies, recording highs last seen over 1 month ago.

The number of coronavirus-related U.S. deaths reported on Sunday was 1,513, the smallest increase since April 6. The largest number of fatalities is still in and around New York, the most populous U.S. city with about 8.4 million people.Financial markets remain on edge over the spread of the novel coronavirus as severe restrictions on personal movement drag the global economy into a deep recession. However, a slower news flow in the past few days has boosted risk assets modestly, and the safe-haven USD has drifted modestly lower. The USD has also been pressured in the last few weeks by Federal Reserve measures that have flooded the financial system with dollars to address a liquidity crunch caused in part by demand for the U.S. currency.Though the USD had drifted higher against the AUD & NZD, those trends mostly reversed by Monday afternoon as the weekend's OPEC+ deal failed to soothe supply concerns. Major oil producers agreed to the output cuts on Sunday to prop up oil markets as the pandemic severely curtailed global demand. Oil-exposed currencies were subdued despite OPEC's record production cuts of nearly 10 million barrels a day. The cartel hopes that the record agreement will help put a floor under oil prices. Still, the outlook remains troubled for oil markets given that the coronavirus has significantly damaged demand.

Australian Economic data remains light today with the release of the March NAB business survey.

For the AUD, the next hurdle for AUD's rally comes just above 0.6400, with resistance at 0.6408, which is the 76.4% Fibonacci of 0.6686-0.5510 March drop. That's followed by 0.6411, which is the 55-DMA.

More significant resistance comes by the 10-MMA at 0.6670. AUD bulls remain in control above the 30 and 10-DMA area just below 0.6200, a break of which would put April lows by 0.5980 in focus.

Government and RBA stimulus have contributed to AUD's rise off the March 19 flash low at 0.5510, and OPEC+ and related curbs on oil output come as recovering risk appetite has improved the outlook for risk-sensitive currencies such as AUD.